Stock Market Basics 101

In order to be able to make loads and loads of money in the stock market, a beginner has to master the stock market basics 101 (or commonly known as stock market 101) first. It is akin to flying a plane, you certainly don't want to fly a plane without knowing how to operate it in mid-air, otherwise... BOOM! It is not easy money and you do have to sacrifice your time and put in effort into it, but the fruits of your labour are sweet indeed...

So what are the few stock market basics 101 that you, as beginners need to know?

Before we start, do take note that I will not be discussing the standard facts of the market (i'll leave these to the "experts" out there) as you can easily get those information elsewhere. I'm more interested to share with you about the things you don't commonly hear about.

Stock Market Basics 101 #1 : Be Prepared
The Stock Market movement is dominated by mutual funds and large institutions (An example will be the trading divisions of the Banks) as they have billions and billions, and thus with the strongest purchasing power. They are run by Fund Managers (strongly supported by analysts, computer trading systems etc etc) who are able to have move the market up or down, particularly if most of them are skewed towards the long side or the short side. In the recent years, ETFs (Exchange Traded Funds) have made themselves a force to be reckoned with. There is a rumour going around that the recent "Flash Crash" (where there a HUGE drop in the Dow, SNP500 and the Nasdaq Composite) was caused by the re-balancing of ETFs. Retail or individual investors/traders/speculators (Example: Me)can only go along for the ride. Think about this, as individuals what chance do we have against the big boys if we are not well prepared? Thus, it is imperative not jump into the stock market if you are not ready. Will you go to war without a weapon by your side if you see the enemy is armed to the teeth? I'm sure you get the picture. If you have been reading up till now, you have taken the right step to learn about the stock market basics 101... keep up the good work! ;)

Stock Market Basics 101 #2 : Big Brother (aka Stock Market) is always right.
Many clever and intelligent people, including "experts" have attempted to predict how the stock market will behave in the future and are totally convinced by their ideas. (Have you heard of Dow 30000?) They also try to influence everyone else besides them with the force of their convictions. When the stock market turn against them, they argue and still feel that they are right and things will turn around soon as their "thesis" cannot be wrong.

If you are one of them, I've got news for you: the stock market doesn't care what you or I think or believe. It doesn't even care whether we exist. Life goes on for it as per normal. There's only one way in the stock market, and it is the way it is moving now. If you choose to form your own opinion, good luck to you my friend. All the best, you'll need it.... A LOT.

Stock Market Basics 101 #3 : Always keep a close watch and maintain a healthy respect for the Stock Market.
A good analogy to illustrate this will be the use of fire. Fire helps us in a variety of ways (Example: Getting our food cooked, keeping the bed warm) but if we are not careful, it can turn us around and bite our ass... HARD (Example: A strong Forest fire kills everything in it's path, a good fire can burn down your home). Essentially, fire makes a good servant but a bad master. As such, be very careful of the stock market when your money is in it. DO not ever think that you have mastered the stock market already, especially when you have not made mistakes before and have a lack of experience. Why? I'll explain next time.

Ok, I find myself late for work already, so I'll stop here for today. We can discuss more about the Stock Market Basics (or stock market 101)in the future. Bye!

Tags: stock market, investing, trading, make money, stocks, finance, wealth building, stock market basics